Sri Lanka foreign reserves dropped to 6,216 million US dollars in October 2025, marking a minor decline from the previous month. The Sri Lanka foreign reserves position reflects ongoing monetary pressures and external debt obligations as the Central Bank balances liquidity, deflationary policy, and foreign debt repayments.
Sri Lanka foreign reserves drop slightly in October 2025 amid policy challenges
The Sri Lanka foreign reserves level stood at 6,216 million dollars in October 2025, showing a decrease of 27 million dollars from September and a year-on-year decline of 256 million dollars. Despite this modest reduction, analysts note that the Central Bank has managed to maintain overall stability through reserve restructuring and controlled monetary policy.
According to financial analysts, the Central Bank has been unable to expand gross reserves since October 2024, though it has strengthened its net reserve position by settling liabilities with the Reserve Bank of India and the International Monetary Fund. This adjustment has supported Sri Lanka’s ongoing recovery process but limited its ability to build a stronger reserve cushion.
During the previous currency crisis, the Central Bank resorted to rate cuts and reserve depletion, alongside swap borrowings and deferred payments to the RBI, to sustain an inflationary policy beyond available reserves. Learning from that period, the current administration has prioritized a more cautious approach, though it continues to face criticism over excessive dollar purchases and policy misalignment.
Market observers highlight that in 2025, the Central Bank bought more dollars than necessary for its deflationary program, which has contributed to currency depreciation despite record current account surpluses. Economists argue that such monetary inconsistencies, rather than trade imbalances, have added pressure to the exchange rate and hindered long-term stability.
Analysts have also expressed concern that the Central Bank may still feel obligated to provide dollars to the Treasury for debt repayments—a role not clearly addressed in the new monetary law, which grants significant policy flexibility. While the Bank’s shift to a scarce reserve regime has reduced the risk of another currency crisis, questions remain about inflationary swaps and the lack of a firm ceiling on net credit to the government under the IMF program.
To improve transparency and reduce monetary stress, experts recommend that the Treasury purchase its own dollars directly in the open market, a reserve money–neutral process. Some economists even suggest dollarizing portions of tax revenues to strengthen fiscal reserves and stabilize exchange operations.
Despite the October dip, upcoming financial inflows could offer short-term relief. The Asian Development Bank has approved new policy loans, and the IMF is expected to release another tranche later in 2025. These funds can be used for external debt repayment or retained as fiscal reserves, supporting Sri Lanka’s efforts to maintain foreign reserve adequacy and investor confidence.
Overall, the Sri Lanka foreign reserves data for October 2025 reflects both progress and vulnerability. While the Central Bank has managed to sustain net reserve growth through careful management, external obligations and internal monetary constraints continue to test its resilience in the face of global and domestic financial pressures.